Big Data and Big Money Are on a Collision Course

October 16, 2017

A recent Forbes article has started us thinking about the similarities between long-haul truckers and Wall Street traders. Really! The editorial penned by JP Morgan, “Informing Investment Decisions Using Machine Learning and Artificial Intelligence,” showcases the many ways in which investing is about to be overrun with big data machines. Depending on your stance, it is either thrilling or frightening.

The story claims:

Big data and machine learning have the potential to profoundly change the investment landscape. As the quantity and the access to data available have grown, many investors continue to evaluate how they can leverage data analysis to make more informed investment decisions. Investment managers who are willing to learn and to adopt new technologies will likely have an edge.

Sounds an awful lot like the news we have been reading recently about how almost two million truck drivers could be out of work in the next decade thanks to self-driving cars. If you have money in trucking, the amount saved is amazing, but if that’s how you make your living things have suddenly become chilly. Sounds like the future of Wall Street, according to this story.

It continues:

Big data and machine learning strategies are already eroding some of the advantage of fundamental analysts, equity long-short managers and macro investors, and systematic strategies will increasingly adopt machine learning tools and methods.

If you ask us, it’s not a matter of if but when. Nobody wants to lose their job due to efficiency, but it’s pretty much impossible to stop. Money talks and saving money talks loudest to companies and business owners, like investment firms.

Patrick Roland, October 16, 2017

Tech Industry Toxicity Goes Beyond Uber

September 13, 2017

Shiny new things have distracted people from certain behaviors, and Fast Company is calling out the entire technology startup culture in, “Why Silicon Valley Can’t Call Uber an Anomaly.” Writer Austin Carr takes us briefly through Uber’s tribulations, which culminated in the departure of infamous CEO Travis Kalanick. See the article for that useful summary, but Carr’s question was whether Uber’s noxious culture is unusual. He writes:

Silicon Valley, though, is insular and guarded. In my reporting, I encountered few people willing to speak openly, let alone critically, about Uber’s troubles. Those who did (most of them, notably, women) argue that there’s an opportunity for course correction right now. It starts by acknowledging that the Valley isn’t yet the utopian meritocracy it strives to be—and that Uber’s errant system exposed some fundamental bugs in the startup economy.

Carr identifies and discusses three of these bugs. First, that which makes a startup succeed often does not scale up well. For example, a confrontational culture that pits workers against each other might fuel a startup’s launch, but becomes unsustainable in a large, global corporation. The second problem is the myth of the “omniscient founder.” Though most of us realize that generating a brilliant idea does not necessarily go hand-in-hand with the capacity to run a large organization, much of the tech industry still seems taken by the foolish notion of one man at the top skillfully managing each and every aspect of the business. Carr points out that even Steve Jobs and Larry Page saw the wisdom in stepping back, and each tapped someone with more corporate experience to run their companies for a while. Not only is this hero-at-the-top attitude inefficient, it also risks the devaluation of every other employee. Talent does not stay where it is not respected.

Finally, Carr observes, the system of accountability needs an overhaul. It takes a lot of scandals to push investors to hold tech companies accountable for bad behavior, and even then board members hesitate to act. The article concludes:

If there really were healthy checks and balances, boards wouldn’t wait for public outrage to act. But to acknowledge that Uber’s system of accountability failed is to acknowledge that fundamental change—something Silicon Valley normally embraces—is necessary. If the Valley truly prides itself on moving fast and breaking things, it ought to start here.

We are curious to see how the industry will respond to such escalating criticisms.

Cynthia Murrell, September 13, 2017

Support for Open Source AI from Financial Firms

August 31, 2017

Financial tech reporter Ian Allison at the International Business Times finds it interesting that financial services firms are joining tech companies like Google and Microsoft in supporting open source AI solutions. In his piece, “Finance and Artificial Intelligence Are Going ‘Fintech’ and Open Source,” Allison points to one corporate software engineer as instrumental to the trend:

QR Capital Management was probably patient zero when it came to opening up their code around data storage – and this move, shepherded by software engineer Wes McKinney, kickstarted the popular Pandas libraries project. Now he has returned to open source work at Two Sigma. We have also seen open source data storage offerings coming out of Man AHL in the form of Arctic. Taking part in a panel on open source infrastructure, McKinney said investment in an open source project yields dividends later: data storage underlies other verticals, and when other people use the software and build libraries on top of it, that makes in-house systems more compatible.

See this link for more about the panda’s library. In the same panel Allison cites above, participants were asked how best to sustain the open source community. McKinney gave this advice:

I feel a compulsion not to let open source projects die. But without sponsorship it can become hard to sustain. So when commercials ask me how they can help, I say sponsor an individual – to triage issues, do patches; that goes a long way.

So, what industry will be next to throw its weight behind open source projects?

Cynthia Murrell, August 31, 2017

 

The Tech Unicorn Ploy

August 28, 2017

This should not come as much of a surprise— Business Insider reports, “Nearly Half of Tech ‘Unicorns’ Rely on Tricky Math to Land Imaginary Valuations.” So dubbed because they were once rare, “unicorn” startups are ones that have achieved valuations of at least a billion dollars. That is “billion” with a “b.” According to a pair of business professors (from the UBC Sauder School of Business and the Stanford  Graduate School of Business), there are now more than 200 such “rare” prospects globally. Why the apparent boom in unicorn birth rates? Citing a recent study put out by the above-mentioned professors, reporter Alex Morrell writes:

Many of [these startups] are using creative financing maneuvers to conjure imaginary valuation figures that don’t hold up to scrutiny, according to the UBC/GSB study, which examined 116 unicorns. It turns out, when you adjust the valuations to account for guarantees provided to preferred shareholders that dilute the value of common shares, nearly half of unicorns lose their coveted $1 billion status.

The article links to an interview with Will Gornall, the professor from UBC Sauder, that explains how he and co-researcher Ilya Strebulaev re-evaluated purported unicorns to discount the influence of such preferred-shareholder guarantees. They found nearly half sported fake horns, with 11% having been valued at more than twice their fair values. The article continues:

Here’s how it works: In later funding rounds, startups will negotiate a higher share price, but as part of the bargain they guarantee their investors certain protections — such as earning a minimum return on their money or guaranteeing they’ll be paid out in full before all other shareholders. ‘Specifically, we found that 53 per cent of unicorns gave their most recent investors either a return guarantee in IPO (14%), the ability to block IPOs that did not return most of their investment (20%), seniority over all other investors (31%), or other important terms,’ Gornall said. Even though this sort of thing has become normal, valuations haven’t caught up to the fact that providing additional protections to senior shareholders lessens the value of common shareholders. Treating the shares equally can significantly inflate the overall value of the company.

Overvaluation can, of course, help a startup attract funding, talent, and customers. For employees, however, such tactics can end up devaluing their compensation packages. Both workers and investors should be wary of over-valuation trickery.

Cynthia Murrell, August 28, 2017

Banks Learn Sentiment Analysis Equals Money

July 26, 2017

The International Business Times reported on the Unicorn conference “AI, Machine Learning and Sentiment Analysis Applied To Finance” that discussed how sentiment analysis and other data are changing the financing industry in the article: “AI And Machine Learning On Social Media Data Is Giving Hedge Funds A Competitive Edge.”  The article discusses the new approach to understanding social media and other Internet data.

The old and popular method of extracting data relies on a “bag of words” approach.  Basically, this means that an algorithm matches up a word with its intended meaning in a lexicon.  However, machine learning and artificial intelligence are adding more brains to the data extraction.  AI and machine learning algorithms are actually able to understand the context of the data.

An example of this in action could be the sentence: “IBM surpasses Microsoft”. A simple bag of words approach would give IBM and Microsoft the same sentiment score. DePalma’s news analytics engine recognises “IBM” is the subject, “Microsoft” is the object and “surpasses” as the verb and the positive/negative relationships between subject and the object, which the sentiment scores reflect: IBM positive, Microsoft, negative.

This technology is used for sentiment analytics to understand how consumers feel about brands.  In turn, that data can determine a brand’s worth and even volatility of stocks.  This translates to that sentiment analytics will shape financial leanings in the future and it is an industry to invest in

Whitney Grace, July 26, 2017

Forrester Research Loses Ground with Customer Management Emphasis

May 3, 2017

Yikes, the Wave people may be swamped by red ink. The investor-targeted news site Seeking Alpha asks, “Forrester Research: Is Irony Profitable?”  Posted by hedge fund manager Terrier Investing, the article observes that Forrester has been moving away from studies on business technology and toward customer-management research. The write-up reports:

The definition of irony, for $500 please? Forrester’s customers… don’t like what they’re selling. This is unfortunate, because as I explain in my Gartner write-up, selling technology research is actually a great business model in general – the value proposition to clients is strong […] and the recurring annual contracts with strong cash flow characteristics make it a hard business to kill even if you really try. To wit, while Forrester’s revenue growth and margins haven’t been anywhere near their targets for quite some time, the business hasn’t imploded and still throws off strong cash flow despite sales force issues and the ongoing product transition.

Perhaps that strong cash flow will ease the way as Forrester either pivots back toward business technology or convinces their customers to want what they’re now selling. The venerable research firm was founded back in 1983 and is based in Cambridge, Massachusetts.

Cynthia Murrell, May 3, 2017

 

 

Yahoo Pay Inequity

April 19, 2017

Former Yahoo CEO Marissa Mayer made a considerable salary, especially considering she came to power during an economic downturn.  Her replacement Thomas McInerney, however, will be making double her salary.  Fortune reports on the income differences in: “Yahoo’s New Male CEO Will Make Double Marissa Mayer’s Salary.”  Pay inequity remains a big topic in today’s job market and this rises to the top as another example of a professional male receiving more money than a woman who held the same position.

Since Yahoo has sold its technology and advertising business to Verizon, it only consists of Alibaba stock, Yahoo Japan, and other miscellaneous investments.  One can assume that McInerney will have a much easier job than Mayer did.  McInerney is the former IAC CEO and his base salary will be $2 million, over Mayer’s $1 million.  He will also be getting more income from Yahoo:

What’s more, Yahoo actually expects to pay McInerney $4 million in his first year working at the company, assuming he earns his target bonus, which is equal to his base salary, according to the new disclosures. That’s 25% more than the $3 million the company is paying Mayer for a salary and cash bonus this year. On top of that, McInerney will also be eligible for grants of long-term incentive rewards of up to $24 million, depending on achievement of performance goals. If he were to receive the maximum amount, it would also be twice as much as Mayer’s long-term incentive grant in 2015, the last full year before the Verizon deal was announced.

McInerney will be paid to run the Yahoo equivalent of a mutual fund.  Yahoo will also not be buying new stock, instead, they will focus on managing their Alibaba stock and Yahoo Japan.  Those two investments basically run themselves.

If you ask me, it sounds like once again a woman cleans up a mess, makes it manageable, and a man comes in to take the credit and more pay.

Whitney Grace, April 19, 2017

Bitcoin Alternative Monero Accepted by AlphaBay

March 17, 2017

As institutions like banks and law enforcement come to grips with the flow of Bitcoin, another cyber currency is suddenly gaining ground. Bloomberg Technology reveals, “New Digital Currency Spikes as Drug Dealers Get More Secrecy.” The coin in question, Monero, has been around for a couple of years, but was recently given a boost by the marketplace AlphaBay, one of the most popular destinations for buyers of illicit drugs on the Dark Web. In the two weeks after the site announced it would soon accept Monero, the total worth of that currency in circulation jumped to over $100 million (from about $25 million the previous month). Writer Yuji Nakamura explains why a shift may be underway:

Bitcoin, the most popular digital currency in the world with a total value of $9.1 billion, also allows users to move funds discreetly and uses a network of miners to verify the authenticity of each trade. But its privacy has come under threat as governments and private investigators increase their ability to track transactions across the bitcoin network and trace funds to bank accounts ultimately used to convert digital assets to and from traditional currencies like U.S. dollars.

Monero similarly uses a network of miners to verify its trades, but mixes multiple transactions together to make it harder to trace the genesis of the funds. It also adopts ‘dual-key stealth’ addresses, which make it difficult for third-parties to pinpoint who received the funds.

For any two outputs, from the same or different transactions, you cannot prove they were sent to the same person,’ Riccardo Spagni, a lead developer of Monero, wrote by e-mail. Jumbling trades together makes it ‘impossible to tell which transaction, of a set of transactions, a particular input comes from. It appears to come from all of them.

Though Monero has yet to withstand the trials of AlphaBay-level volumes for long, its security features received praise from investor and prominent digital-currency-advocate Roger Ver. As of this writing, Monero is ranked fifth among digital currencies in overall market value. Click here for a list of digital currencies ranked, in real time, by market cap.

Cynthia Murrell, March 17, 2017

Oracle Pays Big Premium for NetSuite and Larry Ellison Benefits

February 6, 2017

The article on Reuters titled Oracle-NetSuite Deal May Be Sweetest for Ellison emphasizes the perks of being an executive chairman like Larry Ellison, of Oracle. Ellison ranks as the third richest person in America and fifth in the world. The article suggests that his fortune of over $50B is often considered as mingling with Oracle’s $160B in a way that makes, if no one else, at least Reuters, very uncomfortable. The article does offer some context to the most recent acquisition of NetSuite, for which Oracle paid a 44% premium on a company of which Ellison owns a 45% stake.

NetSuite was founded by an ex-Oracle employee, bankrolled by Ellison. While Oracle concentrated on selling enterprise software to giant corporations, the upstart focused on servicing small and medium-sized companies using the cloud. The two companies’ businesses have increasingly overlapped as larger customers have become comfortable using web-based software.

As a result, it makes strategic sense to combine the two firms. And the process seems to have been handled right, with a committee of independent Oracle directors calling the shots.

The article also points out that such high surcharges aren’t all that unusual. Salesforce.com recently paid a 56% premium for Demandware. But in this case, things are complicated by Ellison’s potential conflict of interest. If Oracle had done more to invest in cloud business or NetSuite earlier, say four or five years ago, they would not find themselves forking over just under $10B now.

Chelsea Kerwin, February 6, 2017

On-Demand Business Model Not Sure Cash Flow

December 23, 2016

The on-demand car service Uber established a business model that startups in Silicon Valley and other cities are trying to replicate.  These startups are encountering more overhead costs than they expected and are learning that the on-demand economy does not generate instant cash flow.  The LA Times reports that, “On-Demand Business Models Have Put Some Startups On Life Support.”

Uber uses a business model revolving around independent contractors who use their own vehicles as a taxi service that responds to individual requests.  Other startups have sprung up around the same on-demand idea, but with a variety of services.  These include flower delivery service BloomThat, on-demand valet parking Zirx, on-demand meals Spoonrocket, and housecleaning with Homejoy.  The problem these on-demand startups are learning is that they have to deal with overhead costs, such as renting storage spaces, parking spaces, paying for products, delivery vehicles, etc.

Unlike Uber, which relies on the independent contractor to cover the costs of vehicles, other services cannot rely on the on-demand business model due to the other expenses.  The result is that cash is gushing out of their companies:

It’s not just companies that are waking up to the fact being “on-demand” doesn’t guarantee success — the investor tide has also turned.  As the downturn leads to more cautious investment, on-demand businesses are among the hardest-hit; funding for such companies fell in the first quarter of this year to $1.3 billion, down from $7.3 billion six months ago.  ‘If you look in venture capital markets, the on-demand sector is definitely out of favor,’ said Ajay Chopra, a partner at Trinity Ventures who is an investor in both Gobble and Zirx.

These new on-demand startups have had to change their business models in order to remain in business and that requires dismantling the on-demand service model.  On-demand has had its moment in the sun and will remain a lucrative model for some services, but until we invent instant teleportation most companies cannot run on that model.

Whitney Grace, December 23, 2016

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